Mt.Gox, the Japanese based Bitcoin exchange, has just recently announced a halt on all withdrawals from its exchange, this includes USD as well as Bitcoin. They are blaming a vulnerability in the Bitcoin protocol (the software code that operates Bitcoin) known as "Transaction Malleability" for the the halt, which has brought on the very real concern that the exchange might be having serious insolvency issues.
Transaction Malleability is a bug in the Bitcoin protocol that makes it possible for someone to use the Bitcoin network to alter a transaction's details to make it seem as if the coins did not reach it's intended destination, when in fact they did. In reality, this has been a known flaw for quite some time, and should factory lightly on the ability of Mt.Gox to transfer fiat currency or Bitcoins to its clients.
If Mt.Gox is actually insolvent, this will be a sad day for Bitcoin. Mt.Gox was one of the key reasons behind the rapid price rise of Bitcoin late last year, and even with their poor customer support, played a vital roll in the popularity of the coin. At one time Mt.Gox handled 80% of all bitcoin transactions, and even if they fix the the vulnerability issues in the protocol they are are claiming is the cause behind the cessation of withdraws from their platform, it is doubtful they will ever reach that level again.
Mt.Gox's issues are having a ripple effect on the price of Bitcoin, and we have already seen a massive drop in price across all exchanges. Mt.Gox is currently trading at $371 (as of the time of writing this article) while other exchanges are above the $600 mark though several, such as BTC-e, dropped to the low $500's in the last 24 hours.
If Mt.Gox fixes their "issues" and opens up withdraw functionality, it is most likely we are going to see a huge dump of the coins into other exchanges as wary ex-Mt.Gox customers pull their Mt.Gox holdings and look for perceived safer and more stable grounds. It is our opinion this will have a negative effect on the price of Bitcoin for quite some time, at the very least it will induce increased volatility for all you day traders to enjoy.
If Mt.Gox fixes their "issues" and opens up withdraw functionality, it is most likely we are going to see a huge dump of the coins into other exchanges as wary ex-Mt.Gox customers pull their Mt.Gox holdings and look for perceived safer and more stable grounds. It is our opinion this will have a negative effect on the price of Bitcoin for quite some time, at the very least it will induce increased volatility for all you day traders to enjoy.
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